Mortgages & Refinancing

Home Mortgages

Mortgage rates will rise and local home prices will fall in 2006, according to an industry forecast. While this may not be the best news for people trying to sell homes, it may mean some relief for renters.
Mortgage rates are expected to reach an average of about 7 percent for 30-year fixed rate mortgages, said John Marcell, president of the California Association of Mortgage Brokers.

Also, more people will likely opt for the 40-year fixed rate mortgage to save on their monthly payments, he said.  Home equity will likely

Home Equity Predictions for 2006

While people have extracted about $600 billion from mortgage refinancings in the last year, "they still have about $10 trillion in home equity," Tannenbaum said. That provides a huge cushion against which they can borrow.

"Affordability has begun to fall a bit, but housing is well within the reach of most Americans, and housing is the biggest recipient of incentives in the tax code," he said.

Tannenbaum said investors "should expect a correction, but not a crash" in the value of their home equity.

Fresh concerns about the real estate market were raised Thursday when Toll Brothers Inc., a leading builder of luxury homes, reported that its fiscal fourth-quarter profit rose 72 percent, topping expectations, but said fiscal 2006 earnings could miss Wall Street estimates on a slowing housing market. It said it was uncertain of its outlook for 2007.

Home Equity - Worldwide

Think the use of home equity is just a US thing, think again.  The number of home equity loans is on the rise in Finland.  And check out the nice home equity rates they get!

The speedy growth of the number of home equity loans in Finland continued in October, according to the Bank of Finland. The loan stock of households grew in October by 16.8 per cent or as rapidly as in September.

The average interest rate for new home equity loans grew ever so slightly, yet remained below three per cent.

The Bank of Finland said Wednesday that the average interest rate for new home equity loans rose to 2.99 per cent in October, while in September it had been 2.92 per cent.

Home Equity Market Continues to Grow

Home equity, the largest segment
of the non-mortgage consumer lending space, continues to be a leading loan
product for many consumers.  TowerGroup estimates that the U.S. home equity
market could reach $1 trillion in value by year-end 2005.  This growth is
driven not just by overall market factors of rising home values and low
interest rates over the past decade, but insightful strategies executed by
financial services players dedicated to the category.
    Driven by the low interest rate environment of the past five years,
homeowners have looked increasingly toward home equity lines as "free money"
-- and have actively applied home equity loans to a broad array of purposes
beyond home repairs.  For many of these uses, the low interest rates and
potential tax deductions offered by home equity represent a better option than
using other forms of credit, tapping into savings, or simply not making a
given investment.
-from TowerGroup report titled, "Home Equity: What's Going Up, What's
Going Down, and What To Do About It"

Home Equity

According to a recent article on cnn.com, It's increasingly a sucker's bet to buy more house than you can afford and assume that cheap financing and rising home equity will bail you out. Why? Housing affordability is the lowest it's been in 14 years.

In California, for example, only 14 percent of people can purchase a median-priced home. "This is an unbelievably dangerous time to take risks in the housing market," says financial planner Harold Evensky of Coral Gables, Fla. (a hot market itself ). "It's a great time to build up a good amount of equity in your home."  Be careful when considering using Home Equity for loans or lines of credit, it's always smart to make sure you aren't over-extended in case of a financial emergency, hot home market or not!

Using Home Equity to Consolidate Debt

Thinking about using your home's equity to consolidate debt?
Sometimes it makes good financial sense to use the equity in your home to consolidate debt. Depending on your financial goals, it may be just the thing to do if you want to:

* Lower your total monthly payment amount
* Make your debt tax deductible*
* Pay off your credit cards
* Consolidate many small payments into one
* Reduce the interest rate on your high-interest debt

There are a several ways to access the equity in your home to consolidate debt:

* A cash-out refinance
* A home equity Loan
* A home equity line of credit

When you refinance to get cash out, you're essentially refinancing to a loan amount more than you currently owe and taking the difference in cash. Depending on your current interest rate, you may actually be able to lower your payment and pay off other debt with the cash. It's possible to lower your overall monthly payments with a cash-out refinance.
A home equity loan is a second loan to tap into your equity. Commonly referred to as a "second mortgage," a home equity loan allows you to get cash for your equity without refinancing your first mortgage and usually in less time.
A home equity line of credit is very similar to a credit card except that it uses your equity as the revolving line of credit. You pay only if and when you use the money. You can get a home equity line of credit in as little as ten days.
When you use the equity in your home to consolidate debt, you do not reduce the amount of your debt. Instead, you lower the interest rate you pay. It's important to not run up your credit card debt again. It may be a good idea to close your credit card accounts and keep one for emergencies only. If you increase your monthly cash flow by consolidating, think about saving, investing or paying down your debt faster. Remember, the whole idea was to consolidate the debt, get it paid off, not run it up higher!

Home Equity Line of Credit

More info from the FTC:

Home Equity Credit Line

Using a credit line to borrow against the equity in your home has become a popular source of consumer credit. And lenders are offering these home equity credit lines in a variety of ways.

You will find most loans come with variable interest rates, some come with attractive low introductory rates, and a few come with fixed rates. You also may find most loans have large one-time upfront fees, others have closing costs, and some have continuing costs, such as annual fees. You can find loans with large balloon payments at the end of the loan, and others with no balloons but with higher monthly payments.

No one loan is right for every homeowner. The challenge, then, is to contact different lenders, compare options, and select the home equity credit line best tailored to your needs.

Be sure to review the home equity contract carefully before you sign it. Do not hesitate to ask questions about the terms and conditions of your financing. To help you do this, you may want to consider the following questions and to use the checklist at the end of this brochure. (To obtain a copy of the checklist, please request a free copy of the brochure by contacting: Public Reference, Federal Trade Commission, Washington, D.C. 20580; (202) 326-2222. TDD call (202) 326-2502.)

Is a home equity credit line for you?

If you need to borrow money, home equity lines may be one useful source of credit. Initially at least, they may provide you with large amounts of cash at relatively low interest rates. And they may provide you with certain tax advantages unavailable with other kinds of loans. (Check with your tax adviser for details.)

At the same time, home equity lines of credit require you to use your home as collateral for the loan. This may put your home at risk if you are late or cannot make your monthly payments. Those loans with a large final (balloon) payment may lead you to borrow more money to pay off this debt, or they may put your home in jeopardy if you cannot qualify for refinancing. And, if you sell your home, most plans require you to pay off your credit line at that time. In addition, because home equity loans give you relatively easy access to cash, you might find you borrow money more freely.

Remember too, there are other ways to borrow money from a lending institution. For example, you may want to explore second mortgage installment loans. Although these plans also place an additional mortgage on your home, second mortgage money usually is loaned in a lump sum, rather than in a series of advances made available by writing checks on an account. Also, second mortgages usually have fixed interest rates and fixed payment amounts.

You also may want to explore borrowing from credit lines that do not use your home as collateral. These are available with your credit cards or with unsecured credit lines that let you write checks as you need the money. In addition, you may want to ask about loans for specific items, such as cars or tuition.

How much money can you borrow on a home equity credit line?

Depending on your creditworthiness (your income, credit rating, etc.) and the amount of your outstanding debt, home equity lenders may let you borrow up to 85% of the appraised value of your home minus the amount you still owe on your first mortgage. Ask the lender about the length of the home equity loan, whether there is a minimum withdrawal requirement when you open your account, and whether there are minimum or maximum withdrawal requirements after your account is opened. Inquire how you gain access to your credit line -- with checks, credit cards, or both.

Also, find out if your home equity plan sets a fixed time -- a draw period -- when you can make withdrawals from your account. Once the draw period expires, you may be able to renew your credit line. If you cannot, you will not be permitted to borrow additional funds. Also, in some plans, you may have to pay your full outstanding balance. In others, you may be able to repay the balance over a fixed time.

What is the interest rate on the home equity loan?

Interest rates for loans differ, so it pays to check with several lenders for the lowest rate. Compare the annual percentage rate (APR), which indicates the cost of credit on a yearly basis. Be aware that the advertised APR for home equity credit lines is based on interest alone. For a true comparison of credit costs, compare other charges, such as points and closing costs, which will add to the cost of your home equity loan. This is especially important if you are comparing a home equity credit line with a traditional installment (or second) mortgage, where the APR includes the total credit costs for the loan.

In addition, ask about the type of interest rates available for the home equity plan. Most home equity credit lines have variable interest rates. These variable rates may offer lower monthly payments at first, but during the rest of the repayment period the payments may change and may be higher. Fixed interest rates, if available, may be slightly higher initially than variable rates, but fixed rates offer stable monthly payments over the life of the credit line.

If you are considering a variable rate, check and compare the terms. Check the periodic cap, which is the limit on interest rate changes at one time. Also, check the lifetime cap, which is the limit on interest rate changes throughout the loan term. Ask the lender which index is used and how much and how often it can change. An index (such as the prime rate) is used by lenders to determine how much to raise or lower interest rates. Also, check the margin, which is an amount added to the index that determines the interest you are charged. In addition, inquire whether you can convert your variable rate loan to a fixed rate at some future time.

Sometimes, lenders offer a temporarily discounted interest rate -- a rate that is unusually low and lasts only for an introductory period, such as six months. During this time, your monthly payments are lower too. After the introductory period ends, however, your rate (and payments) increase to the true market level (the index plus the margin). So, ask if the rate you are offered is "discounted," and if so, find out how the rate will be determined at the end of the discount period and how much larger your payments could be at that time.

What are the upfront closing costs?

When you take out a home equity line of credit, you pay for many of the same expenses as when you financed your original mortgage. These include items such as an application fee, title search, appraisal, attorneys' fees, and points (a percentage of the amount you borrow). These expenses can add substantially to the cost of your loan, especially if you ultimately borrow little from your credit line. You may want to negotiate with lenders to see if they will pay for some of these expenses.

What are the continuing costs?

In addition to upfront closing costs, some lenders require you to pay continuing fees throughout the life of the loan. These may include an annual membership or participation fee, which is due whether or not you use the account, and/or a transaction fee, which is charged each time you borrow money. These fees add to the overall cost of the loan.

What are the repayment terms during the loan?

As you pay back the loan, your payments may change if your credit line has a variable interest rate, even if you do not borrow more money from your account. Find out how often and how much your payments can change. You also will want to know whether you are paying back both principal and interest, or interest only. Even if you are paying back some principal, ask whether your monthly payments will cover the full amount borrowed or whether you will owe an additional payment of principal at the end of the loan. In addition, you may want to ask about penalties for late payments and under what conditions the lender can consider you in default and demand immediate full payment.

What are the repayment terms at the end of the loan?

Ask whether you might owe a large payment at the end of your loan term. If so, and you are not sure you will be able to afford the balloon payment, you may want to renegotiate your repayment terms. When you take out the loan, ask about the conditions for renewal of the plan or for refinancing the unpaid balance. Consider asking the lender to agree ahead of time and in writing to refinance any end-of-loan balance or extend your repayment time, if necessary.

What safeguards are built into the loan?

One of the best protections you have is the Federal Truth in Lending Act, which requires lenders to inform you about the terms and costs of the plan at the time you are given an application. Lenders must disclose the APR and payment terms and must inform you of charges to open or use the account, such as an appraisal, a credit report, or attorneys' fees. Lenders also must tell you about any variable-rate feature and give you a brochure describing the general features of home equity plans.

The Truth in Lending Act also protects you from changes in the terms of the account (other than a variable-rate feature) before the plan is opened. If you decide not to enter into the plan because of a change in terms, all fees you paid earlier must be returned to you.

Because your home is at risk when you open a home equity credit account, you have three days to cancel the transaction, for any reason. To cancel, you must inform the lender in writing. Following that, your credit line must be cancelled and all fees you have paid must be returned.

Once your home equity plan is opened, if you pay as agreed, the lender, in most cases, may not terminate your plan, accelerate payment of your outstanding balance, or change the terms of your account. The lender may halt credit advances on your account during any period in which interest rates exceed the maximum rate cap in your agreement, if your contract permits this practice.

HELOC, Home Equity Loans, Home Equity Line of Credit

Trips and traps lurk in Home Equity offers

Home Equity Line of Credit vs. Home Equity Loan

YOU see offers to get easy cash from the equity in your home, so that you can pay off your monstrous credit-card bills, home improvement costs and other things you owe.

They're called home equity loans and home equity lines of credit.

The difference?

A home equity loan is a straight loan, typically for up to 70 percent or 75 percent of the equity in your house - although some lenders will go as high as 125 percent - usually at a fixed rate of about 6.9 percent.

An equity line rate is almost always variable, and now averages 3.73 percent for a $30,000 line, and 3.07 percent for $75,000, according to Bankrate.com.

Odds are that if you have a high credit score, your interest rate will be a little lower.

The loans and credit lines have become super-popular as more Americans have fallen into debt - what easier way than to borrow money against your home? But before you grab such a loan, there are a number of tricks and traps you need to learn beforehand.

With a home equity loan, you pay it back via equal monthly payments over a specific period of time, while the line of credit works with a revolving balance like a credit card and minimum monthly payments that only cover the interest.

Home Equity Loans

Housing To Have A Splendid Year

Freddie Mac released its monthly Economic and Housing Outlook on Tuesday, with a relieved look backward and an optimistic view of the future.

Frank Nothaft, Chief Economist for the mortgage giant, pointed to tentative year end figures showing that the nation’s economy had produced 2.2 million new jobs in 2004, an increase in manufacturing jobs, and a pickup in factory orders all, he said, signs of an improved labor picture for the country.

Northaft forecast that the Federal Reserve would continue to inch short-term interest rates up in quarter-point increments, hitting a Federal Funds target of 3.0% by mid-year and 3.5% by year end. Assuming that inflation remains “tame,” between 2 and 2.25% for the year, he sees the outlook for long-term interest rates, which would include fixed rate mortgages also good. The yield curve (the difference between 1 year and 10 year Treasury notes) should continue to flatten through 2005, as it did over the second half of 2004. The flatter curve will probably encourage consumers to pick so-called hybrid ARMs. The 5/1 (five years at a fixed rates, adjusting annually thereafter) is now the most popular of these, accounting for two out of every five hybrids written in 2004.

Interest in adjustable rate mortgages (ARMs) will be further encouraged as lenders are expected to increase the discounts they are currently offering on the initial interest rates. As Freddie Mac had noted in its annual survey of adjustable rate mortgages (ARMs) issued last week, lenders are offering average discounts of 1.3 percentage points off of the fully indexed rates of ARMs during the initial fixed-rate period. This is up nearly a full point from the discounts that were offered at the beginning of 2004.

All of this, the report said, should mean that the housing market “should have another splendid year in 2005.”

Housing starts and home sales are expected to fall off from the record setting rates of 2004, but only by one to two percent. Freddie anticipates total new and existing home sales of 7.75 million units in 2005.

And don’t look for the bubble to burse just yet. Freddie projects that housing appreciation, while less than last year, will still be at a more than respectable 7.2% this year and 6.3 percent in 2006.

Single family mortgage originations are expected to decline considerably to $2.6 trillion in 2005 and $2.3 trillion in 2006 from $2.75 trillion in 2004. This decline will be almost totally accounted for by a decline in refinances which are expected to make up only 39 percent of the total residential mortgage market this year and 32 percent next year. Refinances accounted for 46 percent of mortgage originations last year.

Home equity loans and second mortgages are expected to be the vehicle of choice for home owners desiring to pull equity out of their homes. These loans types accounted for almost 20 percent of the growth in single family debt in the year ended September 30, 2004, a trend that Freddie Mac expects to continue.

Cash Out Home-Equity Lines of Credit

A booming technique for cashing out equity is the use of home-equity lines of credit, or ``HELOCs.''

     A recent Mortgage Bankers Association study found that new applications for HELOCs rose an astounding 77 percent in 2004's first half.

     HELOCs are hot partly because lenders have cut rates and fees for these loans. Banks have also dramatically streamlined the closing process.

      Additionally, lenders will routinely offer a homeowner with good credit a HELOC carrying an interest rate at or below the prime rate.

      Finally, because you can generally deduct HELOC interest from your income tax, these loans often cost you just 3 percent or so a year after taxes.

With so many options for cashing out equity available, should you hock your home to the hilt?

Answer: Hardly.
     For openers, bear in mind that HELOCs and cash-out refis can raise your total monthly mortgage payment significantly.

     Also, HELOCs typically have ``floating rates,'' which banks can raise as frequently as once a month based on current market conditions.

     A sudden spike in interest rates could make your monthly HELOC bill much bigger than you expected, putting you in a potential payment squeeze.

     Last but not least, HELOCs and cash-out refis are ``secured'' by your house. If you fall behind on these loans, the bank can seize your home.

      On the other hand, if you truly need to borrow money for a major project, take a hard look at the equity sitting locked up in your property.
After tax deductions, borrowing against this equity could well be your cheapest and quickest source of cash.
see the full article at bostonherald.com